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How might joining the euro affect the UK economy?
The great euro debate:
Economics

The economy, and how it could be affected by joining the euro, is central to the debate.

In November 1997 Gordon Brown set out five economic tests along which the country's readiness can be measured. Each test assesses whether the British economy will benefit or suffer from the move.

Supporters of the euro believe that a shared cash currency would allow Britain to compare its own prices and wages more easily with those of its European counterparts. This, in turn, would lead to greater convergence.

Joining the euro would almost certainly mean better conditions for businesses considering long-term investment in Britain.

Significantly, many large multi-nationals are warning that they only chose to invest in Britain on the assumption that it would eventually join the euro. The strong pound means that companies like Nissan are not making a profit selling to Europe at the current exchange rate.

With this shared currency, though, come a pan-European interest rate and limits on the government's ability to borrow money.

Interest rates are set for the eurozone by the European Central Bank (ECB) in Frankfurt. The Bank of England will be left with just one vote, like all the other central banks in the eurozone.

Shocks to the economy, such as the terrorist attacks of September 11th, make it harder for the ECB to find the right rate.

Whether Britain should lose its own economic identity is hotly debated.

Britain emerged from September 11th stronger than its European counterparts: growth this year is expected to be around 2%, compared with negative growth in Germany and 1.5% in Italy.

Does Britain want its economy linked so closely with others if this means it could be affected by such economic slowdowns?

A final consideration is that some features peculiar to the British economy could be affected by the move to the euro.

Many people in Britain, for example, have mortgages with variable interest rates, as opposed to Europe's more common fixed interest rates. Britain also has the most flexible labour markets, with low interest rates meaning more jobs.

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